Stock Analysis

Zooming in on BVB:TGN's 5.3% Dividend Yield

BVB:TGN
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Could S.N.T.G.N. Transgaz S.A. (BVB:TGN) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A high yield and a long history of paying dividends is an appealing combination for S.N.T.G.N. Transgaz. We'd guess that plenty of investors have purchased it for the income. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

historic-dividend
BVB:TGN Historic Dividend March 2nd 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. S.N.T.G.N. Transgaz paid out 81% of its profit as dividends, over the trailing twelve month period. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.

Remember, you can always get a snapshot of S.N.T.G.N. Transgaz's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of S.N.T.G.N. Transgaz's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was RON13.0 in 2011, compared to RON15.5 last year. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. S.N.T.G.N. Transgaz's dividend payments have fluctuated, so it hasn't grown 1.7% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? S.N.T.G.N. Transgaz's EPS have fallen by approximately 14% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and S.N.T.G.N. Transgaz's earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. S.N.T.G.N. Transgaz's payout ratio is within an average range for most market participants. Earnings per share are down, and S.N.T.G.N. Transgaz's dividend has been cut at least once in the past, which is disappointing. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than S.N.T.G.N. Transgaz out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for S.N.T.G.N. Transgaz (of which 2 make us uncomfortable!) you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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